Debt-to-Income Ratio: Who cares? You Should and Here’s Why

by Andrew Schreiber 21. January 2015

Debt-to-Income

What is your debt-to-income ratio? Don't know? Don’t care? Do you plan on buying a car and getting a loan to do so? Do you plan on buying a house? If the answer is yes, you should definitely care what your debt-to-income ratio is.

Why is your debt-to-income ratio an important factor when looking to borrow money?

Before a lender approves you for a loan, they calculate your debt-to-income ratio. This gives the lender an idea of your ability to pay your monthly debts and take on a new loan. Lenders prefer to see lower debt-to-income ratios because it shows that you have a good balance between debt and income. If your debt-to-income ratio is too high, you may not be approved for the loan amount that you applied for. Generally speaking, a good goal is to keep your debt-to-income ratio at or below 36%.

How do you calculate a debt-to-income ratio?

Simply add up all of your monsthly debts and divide that by your gross monthly income (your income before taxes and other deductions have been taken out) to get your debt-to-income ratio. The formula looks like this:

Total Monthly Debts / Gross Monthly Income

Here’s an example. Let’s say you pay $400 a month for your car loan, $300 for your student loans and $300 for the rest of your monthly debts. This totals $1,000 a month in debt payments. If your gross income per month is $3,000, your debt-to-income ratio would be calculated as follows:

$1,000 / $3,000 = 0.33 = 33%

Your monthly debt-to-income ratio is 33%.

If you found this article useful, be sure to check out these related articles:

Debt to Income Ratio: What It Is and How It Helps (or Hurts) Your Chances of Getting a Loan

What You Need to Know about Buying Your First Car

Is It Good Debt or Bad Debt?

Anne Arundel County Mortgage Assistance Program (MAP)

by Charlie Maykrantz 14. January 2015

Housing Assistance

Are you looking to purchase a home in Anne Arundel County, but short on funds for a down payment or closing costs? 1st Mariner Bank offers a program called, “The Mortgage Assistance Program” (MAP) that can provide up to $20,000 in assistance for the purchase of an owner occupied home anywhere in Anne Arundel County, including the city of Annapolis.

The maximum sales price allowed for an existing home is $242,000 while a new construction sales price limit is $295,000. These funds are a loan; however, no payments are required and are loaned at a zero percent interest rate. The dollar amount of the loan is determined by the lender and Arundel Community Development Services (ACDS). MAP funds are repaid when you sell the home, transfer the title, or in 30 years, whichever occurs first. Also, the loan is due and payable if the home is no longer the borrower’s primary residence or in some cases a refinance of the first mortgage. All homes must pass a Housing Quality Standards (HQS) inspection, which means it cannot violate any health or safety codes.

To be eligible for the Mortgage Assistance Program you must meet the following qualifications:
  • Be a first time homebuyer, which means you have not owned property in the last three years preceding the date of your mortgage application including mobile homes, raw land, a building, principle residence, vacation home, rental property, inherited property, commercial property, any jointly held property, or a cooperative.
  • Be a graduate of the Arundel Community Development Services (ACDS) Homeownership Counseling Program.
  • Meet the household income limits as set for by the program administrator.

Once the applicant graduates from the Homeownership Counseling Program they will be provided a Mortgage Assistance Program application along with their Homeownership Counseling Graduation Certificate.

In all cases, the borrower must contribute at least 1% of the sales price to the transaction. At the time of settlement a borrower cannot have savings in excess of three months of mortgage payments.

For more information please contact Charlie Maykrantz at cmaykrantz@1stmarinerbank.com or 410-735-2068.

The above program ie subject to change at any time and this does not constitute a guarantee on the part of 1st Mariner Bank as an obligation to offer this program without the approval of the program administrator. All applicants must be qualified to purchase and participate in this program per underwriting guidelines of both 1st Mariner and the program administrator.

Be Selfish, Pay Yourself First

by Stacy Tharp 13. January 2015

Savings Piggy Bank

Let me rephrase that - paying yourself first isn’t selfish, it’s smart. But we should back up. What does it mean to pay yourself first? You (hopefully) have a monthly budget that includes your bills and day-to-day expenses. Paying yourself first means that before you take anything else into account, you first set aside a pre-determined portion of your income into a savings account.

So let’s say you want to save 20% of your income, and your monthly take-home pay is $3,000*. You would first set aside that $600 (0.20 x $3,000), which would leave you with $2,400 ($3,000 - $600) to then allocate funds for bills and other monthly expenses. Sounds easy enough, right? It’s almost as if that $600 was never there – except it definitely is there, earning you interest in your savings account!

This concept could get a little bit tricky during those months when you have a few extra unexpected expenses. You should always be prepared for months like these because no one is immune to unforeseen expenses.

So think about it ahead of time – if you have to make an emergency home repair, how are you going to pay for it? How about an unexpected medical bill? If you have three out of town weddings in one month, are you going to pay for the hotels out of your regular monthly spending money, or from a savings account? Maybe you want to set up a savings account specifically for vacations and use funds from that account.

There is no right or wrong answer when it comes to how to pay for these things – what you do want to avoid is not planning ahead, then panicking and stop paying yourself first.

You may have noticed that I was not specific about what type of savings account(s) you should use to pay yourself first. It’s up to you. It might be a good idea to speak with a Financial Consultant to decide how much money you should set aside, and into what types of accounts. The main idea is to have a plan of where you put your money, where you are “allowed” to pull money from in emergencies, and to pay yourself first!

*These figures are hypothetical and are not intended to be used as financial advice.



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